How does Management Recruiters account for business acquisitions?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
rtification. WOTC is authorized until December 31, 2025.
Business Combinations
We account for business acquisitions under the acquisition method of accounting by recognizing identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquired business at their fair values. We record the portion of the purchase price that exceeds the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed, if any, as goodwill. Any gain on a bargain purchase is recognized immediately. We recognize identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognized by the acquiree prior to the acquisition. We expense acquisition related costs as we incur them. Our acquisitions may include contingent consideration. Any contingent consideration is measured at fair value at the date of acquisition. Contingent consideration is remeasured at fair value each reporting period with subsequent changes in the fair value of the contingent consideration recognized during the period.
Asset Acquisitions
When we purchase a group of assets in a transaction that is not accounted for as a business combination, usually because the group of assets does not meet the definition of a business, we account for the transaction using a cost accumulation model, with the cost of the acquisition allocated to the acquired assets based on their relative fair values. Goodwill is not recognized. In an asset acquisition, direct transaction costs are treated as consideration transferred to acquire the group of assets and are capitalized as a component of the cost of the assets acquired. Our acquisitions may include contingent consideration. Any contingent consideration is measured at fair value at the date of acquisition. Contingent consideration is remeasured at fair value each reporting period with subsequent changes in the fair value of the contingent consideration recognized during the period.
Earnings per Share
We calculate basic earnings (loss) per share by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding. We do not include the impact of any potentially dilutive common stock equivalents in our basic earnings (loss) per share calculations. Diluted earnings per share reflect the potential dilution of securities that could share in our earnings through the conversion of common shares issuable via outstanding stock options and unvested restricted shares, except where their inclusion would be anti-dilutive. Outstanding common stock equivalents at December 31, 2021 and December 31, 2020 totaled approximately 209,000 and 308,000, respectively.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 65–66)
What This Means (2024 FDD)
According to Management Recruiters' 2024 Franchise Disclosure Document, the company uses the acquisition method of accounting for business combinations. This means Management Recruiters recognizes identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquired business at their fair values. If the purchase price exceeds the fair value of these identifiable assets and liabilities, Management Recruiters records the excess as goodwill. Conversely, any gain from a bargain purchase is recognized immediately. Acquisition-related costs are expensed as they are incurred. Contingent consideration is measured at fair value on the acquisition date and remeasured each reporting period, with changes in fair value recognized during that period.
For asset acquisitions, where a group of assets is purchased but does not qualify as a business combination (typically because it doesn't meet the definition of a business or because the assets are concentrated in a single asset or similar assets), Management Recruiters uses a cost accumulation model. Under this model, the acquisition cost is allocated to the acquired assets based on their relative fair values, and goodwill is not recognized. Direct transaction costs are treated as part of the consideration transferred and are capitalized as part of the asset's cost. Similar to business combinations, contingent consideration is measured at fair value at the date of acquisition and remeasured each reporting period, with changes recognized during the period.
For example, Management Recruiters' acquisition of LINK Staffing was treated as an asset acquisition because the fair value of the acquired gross assets was primarily concentrated in the franchise agreements. As a result, no pro forma financial information was presented. In another instance, Management Recruiters acquired Recruit Media for approximately $4.4 million, purchasing all outstanding shares, which suggests this was treated as a business combination rather than an asset acquisition. These accounting methods are standard practices that ensure transparency and compliance with accounting principles when Management Recruiters expands through acquisitions.